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Fraudulent Asset Transfers

NJ Fraudulent TransfersNJ Fraudulent Asset Transfers

Our New Jersey lawyers represent creditors who have been defrauded by dishonest debtors who have engaged in fraudulent asset transfers to avoid paying a judgment, or making themselves judgment proof. Our NJ law firm also represents defendants  accused of receiving fraudulent asset transfers.

In addition, our expertise in this field of law also extends to defending preference and fraudulent conveyance claims asserted by bankruptcy trustees in Chapter 7 and Chapter 11 bankruptcy cases in the United States Bankruptcy Court for the District of New Jersey  located in Newark, Trenton, and Camden.

Like many other states, New Jersey has enacted laws that prohibit the transfer of assets intended to avoid the reach of creditors. In New Jersey this law is known as the New Jersey Uniform Fraudulent Transfer Act (“NJUFTA”).

The NJUFTA defines two categories of fraudulent transfers. First, those transfers made by a debtor with actual intent to “hinder, delay or defraud” any creditor of the debtor. This action is the so-called “actual” fraud provision, and is codified in N.J.S.A. 25:2-25.  Second, those transfers made where the debtor does not receive reasonably equivalent value in exchange and the debtor was insolvent at the time of the transfer or became insolvent as a result thereof.  N.J.S.A. 25:2-27.

Classic examples of fraudulent asset transfers include:

  • Real estate transfers between a husband and wife for little or no money
  • Sham divorces orchestrated to shield assets from creditors
  • Shutting down a financially distressed business and transferring the assets to a new company that  operates in the same industry with the same principals and customers
  • Payments made to shell companies disguised as legitimate vendor payments
  • Checks made payable to “insiders” – relatives and friends – and returned in “cash”

In a fraudulent conveyance case, the primary goal is to persuade the court to compel the asset to be put back in the name of the debtor.  This is not always easy to accomplish. In certain instances fraud requires proof of actual intent to hinder, delay, or defraud a creditor of the debtor. In addition, proving insolvency at the time the transfer was made may require hiring a forensic accounting expert. This depends on the complexity of the circumstances, and whether the transfer was made by a corporate or individual debtor.

What factors do the courts consider in determining whether an asset was fraudulently transferred?
Under N.J.S.A. 25:2-25(a), courts will consider the following non-exclusive list of “badges of fraud,” such as whether:

a. the transfer was to an insider;

b. the debtor retained possession or control of the property transferred after the transfer;

c. the transfer was disclosed or concealed;

d. before the transfer was made, the debtor had been sued or threatened with suit;

e. the transfer was of substantially all the debtor’s assets;

f. the debtor absconded;

g. the debtor removed or concealed assets;

h. the value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred;

i. the debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred;

j. the transfer occurred shortly before or shortly after a substantial debt was incurred; and

k. the debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

The above factors apply to transfers made to avoid present and future creditors.  In NJ our courts will consider any of the above factors to establish a fraudulent transfer.  This is not an exhaustive list, and the court need not find all 11 enumerated factors to conclude the existence of fraudulent intent. 

Did the recipient of the transfer pay a reasonably equivalent value for the asset?
N.J.S.A. 25:2-27(a), which relates to present creditors only, states:

A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent.

Thus, the elements of a fraudulent transfer under this portion of the NJUFTA are (1) the creditor’s claim must have existed prior to the asset transfer, (2) the transferee did not pay reasonable equivalent value for the asset, and (3) the transferor was insolvent at the time of the transfer, or became insolvent as a result of the transfer.

What remedies exist for a creditor challenging the validity of an asset transfer?
If the transfer is demonstrated to be fraudulent within the meaning of the NJUFTA, the creditor’s remedies include (1) avoidance of the transfer, (2) invocation of a provisional remedy, (3) an injunction, (4) appointment of a receiver, or (5) “[a]ny other relief the circumstances may require.” N.J.S.A. 25:2-29

Who has the burden of proof to establish that a fraudulent transfer occurred in NJ?
The plaintiff bears the burden of proof to establish a claim for fraudulent conveyance of assets.

Is there any defense to a fraudulent conveyance claim under NJ law?
Yes. N.J.S.A. 25:2-30(a) provides that a transfer is not voidable under N.J.S.A. 25:2-25(a) if the transferee “took in good faith and for a reasonably equivalent value.” Good faith is an affirmative defense to a fraudulent transfer claim. The burden of proof on this affirmative defense rests with person or entity asserting it.

NJ Fraudulent Asset Transfers

Our firm represents both plaintiffs and defendants in fraudulent asset transfer claims in NJ state and federal courts, including bankruptcy court.  Please contact our New Jersey litigation attorneys today to discuss your case. One of our experienced lawyers will respond to your inquiry within 24-48 hours.

Serving Northern, Central and Southern New Jersey. Bergen County, Essex County, Hudson County, Mercer County, Middlesex County, Morris County, Passaic County, Somerset County, and Union County

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